Sacramento Appraisal

Is it excess or surplus land? And why does it even matter? Let’s talk about that today while looking at a real life example of a lot that is currently being divided.

Excess Land: This is when the lot is larger in size and the extra land (or excess) can be sold separately from the existing lot. In other words, a portion of the lot can be broken off from the rest, sold separately, and have a different highest and best use from the rest of the lot.

Surplus Land: This is when the lot is larger in size and the extra land (or surplus) cannot be sold off separately. This means the “surplus” doesn’t have a separate highest and best use. The larger size is simply extra land that still might have some value, but it can’t be used for a separate purpose from the rest of the lot.

Why does this matter?

1) Real Estate Jeopardy: Next time you’re on Jeopardy you’re going to sound like an expert when the category is land.

2) Assuming Value: It’s easy to assume a larger lot is always more valuable, but we have to ask if we’re dealing with surplus or excess land because it could make a difference in the value. At times we see a large lot size and get distracted like we’ve seen a bright shiny object. But can the land be divided? What can it be used for? Does the parcel shape help the lot be useful for buyers? And what have comps with larger lot sizes actually sold for too?

3) The Bottom Line: Here’s the big deal. A larger lot that can be divided might be worth far more than a larger lot that cannot be divided (thanks Captain Obvious). For instance, the lot in the example above is located in the Curtis Park neighborhood and the extra space in the backyard is considered excess land because it CAN be divided and have a separate highest and best use. This backyard is currently being split by Keith Klassen in order to build two new homes. Anyway, this reminds us how important it is to talk with the local planning department to see what possibilities exist for extra space on a lot. We might see something big and assume it can be divided, but can it really? What does zoning allow? Moreover, is it realistic for the property to be divided right now? Remember, just because a lot can be divided doesn’t necessarily mean its going to happen in the current market. For instance, imagine values are tanking and new construction has stopped in the area. In a market like that any excess land might not command much of a value premium. But in a market where values are up and construction is happening, there is a higher probability of the lot being worth far more because it might be split.

I hope this was helpful. There are many other things we could discuss here, so let’s kick around some ideas in the comments.

Questions: Anything else to add? Any stories to share? Did I miss something? I’d love to hear your take.

Some friends recently let me have one of their real estate yard signs, and I had some fun transforming it into a chalkboard. Now I’m giving it away. Do you want it?

This piece is roughly 2’8″ wide and 2’x2″ high. It’s perfect for an office, bedroom, garage or wherever. Here is a quick video so you can better see the project since the photos don’t quite bring out all the color. Watch below (or here):

My Process: I split the post, removed graphics on one side, built the frame, used a distressed painting technique (which is why the frame looks older), and then glued the sign and frame together with Liquid Nails. I kept the reverse side intact to pay tribute to the original use. Thank you Brandy & Whitney of FAM Real Estate for letting me do this.

The Contest: This is open to anyone in the Sacramento area. It’s okay if we don’t know each other. As long as you live within 30-40 minutes or so of Downtown Sacramento, we can meet up near your work or home. Otherwise we can meet in public near Sacramento if you’re not local. If this goes over well and I build something again, I’ll be sure to make something smaller (easier to mail) and open up the contest nationally since I know many readers are out of state (thank you).

You can do all three if you wish, but please let me know what you did by commenting below or sending me an email. If you share on Twitter and mention me, I’ll know already (@SacAppraiser). I’ll tally up all entries and randomly select one winner on May 27. Good luck everyone. Thanks for entering.

UPDATED: Congratulations to Realtor Meghan Wood for winning the chalkboard contest. I’ll reach out and get the board to you soon. Thank you everyone for entering to win – whether here or other social places.

Question: What else do you think could be built from a real estate sign?

Here is your monthly unemployment update. We saw a percentage point decline in the unemployment rate over the past few months in Sacramento County, but the rate is now back up to 11.1% after two previous months at 10.5% (per EDD June 2012). Unemployment rates tend to go up and down each month, so it’s not a huge concern to see it jump back up again – especially since it had such a large decline a few months ago. The rate is still down from the high of 13.2% in July 2010, and the trend still appears to be declining, but we’re not out of the dark economic woods yet. While we are seeing improvement overall in unemployment figures and the housing market has been experiencing rising property values in portions of the market, let’s continue to keep things in perspective. We still have a way to go.

Any thoughts? What are you seeing in the job market out there? Is it any easier to find a job right now than it was 1-2 years ago?

Do you want to share these graphs? If the graphs above would be a relevant resource for your clients, Facebook audience, Twitter audience or blog readers, please feel free to share. If you need a larger size for a presentation or newsletter (or your blog), let me know. Please see my sharing policy for details. As always, thank you for linking back to me and keeping my images intact. It’s a huge honor when others share my content.

Should you convert your garage? Would your home be worth more or less with a garage conversion? I asked nine local real estate pros to share some thoughts on the topic, and here is what they had to say. I’d love to hear what you think in the comments below.

Jeff Grenz, Real Estate Broker in SacramentoWhen hunting for and evaluating homes for my flipper clients, garage conversions have a negative impact. In plain English, I calculate the cost to remove the conversion and restore the garage to original usage in 100% of cases. Why? Most conversions are unpermitted and ultimately that would have to be resolved. Most conversions are poorly executed, have issues with HVAC and access to bathrooms. Buyers want garages for vehicles and storage. While the conversion may have added temporary value for the seller, paraphrasing some of my favorite rock and roll: “you’re fooling yourself if you believe” it adds value for a buyer.

Patrick Hake, RE/MAX Gold, Real Estate Broker in Auburn:I believe that if done well, they are a wash. They add some value by increasing the size of the home, but at the same time detract value by removing the garage. If done poorly, they can absolutely remove value. This includes if they are done with shoddy workmanship, but also if they are done when there is a lack of other parking or storage space. I have seen numerous examples of homes with converted garages that have little on street or driveway parking and/or have nowhere to store the junk that would normally go in a garage. If someone were to want to do a conversion, they should have ample additional parking and a shed or some other type of storage space for typically garage stuff. I also think that when people do a permanent conversion that removes the garage door and replaces it with an exterior wall, it definitely detracts from the curb appeal and lowers value.

Here is an example of a home that was flipped recently in my neighborhood that had a full garage conversion: http://bit.ly/NG49Be There were numerous other things done to the home to update it and spruce it up, but one of the main things the investors did was to reverse the garage conversion and put in a new garage door. The bank sold it to the investors through the MLS for $185,000. It had languished on the market for quite a while before selling to them. After having the garage conversion removed and updating the rest of the interior and exterior, it recently sold for $250,000 after being on the market for 19 days.

Erin Stumpf Attardi, Dunnigan Realtors – Realtor in Sacramento:There are several factors that I take in to consideration when trying to determine what adds or subtracts value — OR — adds or subtracts to the desirability of a home in general. Best case scenario with a garage conversion that will add value = good workmanship, done with permits, and the presence of available garage parking that is consistent with the surrounding neighborhood. Worst case scenario with a garage conversion that will subtract value = poor workmanship, done without permits, and no available garage parking that is consistent with the surrounding neighborhood (See more of Erin’s thoughts on conversions on her blog – this text was taken from her post with permission).

Ted DeFazio, Ellington Properties – Real Estate Agent in Sacramento:I can definitely shed some light on how they could possibly add value, for the right buyer. I find that the older, tiny detached garages like ones found in East Sac or Land Park barely fit a car in them as is. When converted to a game room, man cave, or office, it creates a completely private place to escape to. The best example I can think of was an episode of Interior Therapy by Jeff Lewis. In the episode, Jeff converted a backyard garage into a home office and lounge type area. This garage was previously used as junk storage and by the end of the conversion you could see how much it brought to the property.

Doug Reynolds, Better Homes & Gardens Real Estate – Realtor in Sacramento In my experience, garage conversions typically do not add value to a home. Right off the bat, a large handful of buyers will not even be interested in the property if it does not have a garage. Therefore, the seller is missing out on about 60% of the potential buyers. So now your competition/interest in the home has already dropped. Next, the question screams: “Was it done with a permit?” Most of the time, garage conversions were not done with permits. This causes red flags for buyers and also eliminates more buyers who are using financing that will not allow non-permitted garage conversion purchases. Additionally, most garage conversions have a step down into the room and it typically does not “feel” like the rest of the house. Due to this, it does not add value for the extra square footage. You lose a garage and in place have not as good quality extra square footage. This leads to using the original square footage when trying to value the home with recent sales. With all of this factored in: In most cases garage conversions decrease the value of a home. At best, the conversion equally cancels out the loss of the garage. The only time it would add value is if you are adding a bedroom and/or bathroom that was done with permits, does not have a step down, the central heat/air is tied into the space and gives the same “feel” as the rest of the home.

Rob McQuade, Better Homes & Gardens Real Estate – Realtor in SacramentoAll I’d really say on the subject of whether garage conversions add value is: It depends. Are they common to the neighborhood? Some older neighborhoods of mostly two-bedroom homes have seen a large number of garages converted to additional living or bedroom space, and in neighborhoods like this it makes sense. Generally speaking, though, I think most people want a garage and are willing to double an office as a guest bedroom instead of looking for two rooms. More often than not when I take clients through homes with garage conversions I get comments like “this is kind of funky” and we have the discussion about how difficult it would be to convert it back to a garage.

Lori Najera, Fusion Real Estate Network – Broker AssociateBuyers want bedrooms, bathrooms, nice living spaces and in most cases, a garage. In the past 12 years I’ve sold 3 homes with converted garages. These are their stories: 1) A single mother; 2) An investor looking for his next rental, and he liked the converted garage so he could charge more for rent (since it was called a “bedroom” – never mind that the driveway drainage was poor and it slanted down into the garage); 3) An elderly librarian who was also a first time home buyer, who had 12 cats. Yes, the converted garage was for the cats. So for those potential buyers, go ahead and convert those garages! Otherwise, please leave a garage as a garage. I haven’t even gotten into the hassle on the lending side if this conversion was done without permits. If you want to make your home appeal to the most buyers, and sell for more money, leave the garage intact.

Max Boyko, Team Hybrid Real Estate Services – Broker AssociateI think conversions would really be on a case by case basis… and mostly dependent on the needs of the buyer. I am a strong believer that each sale is unique, and if you are in the right place at the right time, you could sell a property for significantly more than you would at a different time. This definitely includes conversions, as some people try to maximize on their living area. Not having a garage though will definitely have a negative impact on the value. Another big factor would be the neighborhood. Many of the lower priced neighborhoods may even benefit from having a conversion (kind of like diluted price per square foot), so it may have a positive impact on the overall price. Higher end neighborhoods, however, don’t necessarily look at the total square footage to determine the price but more on the outlay, condition, and lot. It would also have a much larger negative impact in a higher end neighborhood as it’s not necessarily seen as “desirable” to live in a conversion. Maybe a cheaper alternative to an in-law quarter. 🙂

Eric Peterson, Praxis Capital – Real estate investment firmAs far as conversions, we usually convert them back. We’ve found that most people value a garage more than an additional bedroom. The need for extra storage space along with the reality that most conversions aren’t done very well leaves us converting about 90% back to garages.

Questions: What’s your reaction to the comments above? Agree? Disagree? In what circumstances would you consider converting your garage?

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